MasTec Moves North

Infrastructure continues to remain a compelling long term investment theme. McKinsey estimates that the United States alone, needs to spend more than $2 trillion over the next five years just to catch up to other developed markets. With billions needed to be spent, investors should consider the sector. Conversely, with the recent budget issues and the expiration of various stimulus measures preventing the U.S. from seriously improving its vital economic building blocks, so some smaller infrastructure firms are getting squeezed. In spite of this, construction firm MasTec (NYSE:MTZ) isn't resting on its laurels. With its recent acquisition bringing much needed exposure to another northern market, the company could be a great way to play the need for improved infrastructure.

Canada Bound With its strengthening energy market and abundant natural resources, Canada is an ideal place to set up shop. MasTec saw the appeal and recently purchased Canadian pipeline and facility construction services company, Fabcor, and its subsidiaries. The deal, which only cost $21.1 million in cash and assumption of only $8.8 million in debt, allows MasTec to participate in other areas of the Canadian energy infrastructure build-out. The company anticipates major opportunities for energy infrastructure work in Canada during the next few years, and that the acquisition will provide a platform to provide those services in a variety of areas including transmission and pipeline construction.

The Fabcor purchase also gives MasTec access to some major clients. Fabcor has completed projects for EnCana (NYSE:ECA), Devon (NYSE:DVN) and Murphy Oil (NYSE:MUR).Fabcor was recently awarded a contract to construct a 100 million cubic foot per day natural gas processing plant in British Columbia, which MasTec will take over. Overall, MasTec's management is quite bullish on the purchase, with CEO Jose Mas saying the deal "gives access to the dynamic Canadian energy markets, which we believe will show significant profitable growth in coming years" and "it will create opportunities and expose MasTec to a very large infrastructure market adjacent to the markets we currently serve."

A Basis for Investment Gaining access to the faster growing Canadian energy infrastructure market makes the MasTec/Fabcor deal a win-win. Capital spending in Canada's petroleum sector is expected to hit $44 billion this year. This doesn't even include the billions being spent on new transmission lines, hydroelectric power plants and renewable energy. Improving the older infrastructure is just as important. Over 15% of Manitoba's transmission lines are 50 years of age or older. Considering the cheap price MasTec paid for Fabcor, the deal gives the company unprecedented access to one of the premier infrastructure sub-sectors and destinations. In addition, the company comes away debt free, having already paid off the $9 million in assumed Fabcor debt.

From a metric point of view, MasTec looks good as well. Over the past 12 months, MasTec generated nearly $187.6 million in cash while it booked net income of $90.5 million, giving it a FCF margin of about 8.1%. This is quite favorable to rivals Quanta's (NYSE:PWR) 2.3% and MYR Group's (MYRG) 3.8%. Going forward, MasTec expects to grow its earnings per share by over 14% and grow revenue by 9% throughout the year. EBITDA guidance for 2011 is in the $275 to $280 million dollar range. Even during the economic slowdown, the company was consistently profitable for those three years.

Finally, the stock has been on fire over the last year, but still sits about 5% below its 52 week highs. Shares of the company trade for a forward P/E of 14 and a PEG of 1.2. While not dirt-cheap, the growth prospects in Canada still make it an ideal portfolio candidate.

Bottom Line Infrastructure remains a compelling theme. With MasTec's recent purchase of Fabcor, the company now gains access to the faster growing Canadian energy market. This will provide great long term effects to the company's earnings and, ultimately, its share price. Investors looking for a smaller infrastructure play should consider MasTec versus some its rivals like Pike Electric (Nasdaq:PIKE).(For additional reading, also take a look at Build Your Portfolio With Infrastructure Investments.)